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Françoise Pardos, Pardos Marketing


Globalization and large economic blocks

The outsourcing of manufacturing to other nations has spurred the development of a global economy, currently seen as a permanent feature. It is probably more accurate to say that the global economy is a set of transient economic relations that happened because of two fundamental, and transient conditions, a half century of relative peace between great powers and a half century of cheap and abundant fossil-fuel energy. These two mutually dependent conditions are now liable to come to an end, as the great powers enter a bitter contest over the world remaining energy resources, and the world is actually apt to become a lot larger and less streamlined.

The main phenomenon is the fast rise of many countries and areas to more dynamic economies and higher average living standards.

There is the Goldman Sachs & Co report of 2003, and further updated, on the so-called BRIC countries, Brazil, Russia, India, China, to 2050.

The apparently optimistic growth projections in Goldman Sachs of 2003 are supported by other studies, such as Rodrik and Subramanian, in 2004, regarding India, and Heytens and Zebregs, in 2003 concerning China, although these studies are based on a far shorter time horizon.

The growth of the BRIC countries has led to a considerable absolute increase in prosperity. From 1980 and up to now, purchasing-power-adjusted GDP per capita, in current prices, has increased twelve fold in China, more than quadrupled in India and slightly more than doubled in Brazil. In Russia, purchasing-power adjusted GDP per capita is approximately 50% higher than in 1998. In absolute terms, living standards in the BRIC countries are still low. The World Bank describes Brazil, Russia and China as "lower middle income" countries, while India is a "low income" country. Relative to the mature market economies the development in prosperity measured by purchasing-power-adjusted GDP per capita, at current prices, has varied considerably among the four BRIC countries. While China and India have managed to relatively increase their prosperity compared to the USA, Brazil has become relatively poorer.

There will be free trade for all industrial products in 2025. But there might be less global trade, maybe because of rising energy prices. Major trading areas will develop into blocks, consolidating and extending the existing trade areas:

NAFTA, North American Free Trade Agreement, and broader FTAA, Free Trade Area of the Americas
Economic Union, EU and associates
Mercosur, and associates
ASEAN, Association of Southeast Asian Nations, and associates

A forthcoming effect of the increasing prices of raw materials and primary products is the move of producing countries to try catching more of the processing added-value. There already are many examples, with the Venezuela getting hold of its oil markets, Russia moving to control markets for oil, gas and, most recently, trees, to feed Finland pulp and paper plants. In Africa, the governments of Botswana, Namibia and South Africa are putting pressure on diamond producers to set up diamond cutting and jewelry manufacturing plants, while Katanga temporarily banned the export of copper concentrates to Zambia for refining.

These trends of more added-value at the production sources of raw materials might later go with reduced transcontinental trade, as the transportation costs increase, and as the large industrial goods exporting countries, such as China, shift to more supply to their own domestic customers.

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